B of A High Yield Large-Cap Index up 0.35%; ends 2002 with 2.89% loss for year

By Paul Deckelman

New York, Jan. 7 - The Banc of America High Yield Large Cap Index finished 2002 on a positive note, gaining 0.35% in its final week, although it ended the year with a cumulative loss of 2.89%. However, a great surge in the index's performance over the final quarter of the year brought that loss figure down sharply from its swollen earlier peak levels.

Since that market turnaround began, the year-to-date loss steadily declined from the bloated 15.68% cumulative loss recorded in the week ended Oct. 10, just before the late-in-the-year advance started.

In the week ended Dec. 31, the High Yield Large Cap Index showed a spread over Treasuries of 956 basis points and a 12.51% yield-to-worst.

The final week's results compared with the 0.92% gain seen in the week ended Dec. 19, when the spread was 960 basis points, the yield to worst 12.71%, and the year-to-date loss 3.41% (Banc of America did not publish the Index the following week due to the Christmas holiday).

The 2002 last week's tally also compared favorably with the results seen at the end of 2001, when the B of A market measure suffered an approximate 3% loss for the full year. The spread at the end of 2001 was somewhat over 900 basis points off Treasuries and its year-end yield to worst was above 13.50%.

Banc of America sees the High Yield Large Cap index, which tracks issues of $300 million and over, as a reliable barometer of trends in the overall high-yield market of over $500 billion.

The bank's High Yield Broad Market Index, which includes issues of $100 million or more, meantime, also ended 2002 on the plus side, having gained 0.31% for the week and 1.55% for the full year, with a spread of 963 basis points and a 12.43% yield to worst.

In the week ended Dec. 19, the High Yield Broad Market Index had gained 0.64% with a spread of 963 basis points and a 12.57% yield to worst. The year-to-date return at that time stood at 1.04%. The cumulative measure had swung back into the black in late November after several months of having shown a loss.

B of A analysts wrote in their final index report for 2002 that the credit markets "had a disappointing year, with neither [investment-grade] corporate nor high yield bonds indices able to overcome their benchmarks as Treasuries outperformed corporates and the high yield market languished through its fifth consecutive year of sub-coupon performance."

The analysts said that investor worries about corporate malfeasance, geopolitical concerns, a sluggish U.S. economic recovery, U.S. equity market skittishness, high default levels and a weakening dollar "all worked to the benefit of higher-rated bonds and traditionally defensive sectors. As in 2001, surprises and market shocks remained commonplace in 2002, making it difficult for spread rallies to sustain themselves."

The high yield market, they said, averted "a total meltdown" with its rebound in the latter part of the year; the High Yield Broad Market Index had a strong total return of 7.58% in the fourth quarter.

But its relatively weak results for the year as a whole could be blamed, B of A said, on the poor performance of recent fallen angels, negative surprises in the utilities and cable sectors and a heightened degree of risk aversion. Telecommunications also proved to be a drag; the High Yield Broad Market Index's ex-telecom segment fared "somewhat better" than the whole index, finishing the year with a 2.47% annual return.

The preference for quality during 2002 "was clear from the relative performance of [the High Yield Broad Market Index's] credit tiers, the analysts added. The upper credit tier, consisting of BB+ and BB credits, ) posted the highest total return last year, 7.86%, followed by the broad middle tier (issues rated BB-, B+, B), up 1.41%. The bottom credit tier (B- and below) was down 1.47% on the year.

The Index's single best performing sector for the was consumer non-durables, which rose 16.61%, reflecting what B of A called the "solid performance of retail and textile/apparel names," such as Saks Inc., whose bonds gained up to 12 points during the year, Dillards Inc., up eight points, and Levi Strauss & Co., whose bonds gained anywhere from seven to nine points.

Other notable performers for the year included paper & packaging (up 16.40%), entertainment (up 15.14%), gaming (up 14.15%) and publishing, up 13.38%.

The year's worst performer was international wireline telecommunications, which slid 32.99%; a measure of the sector's weakness was the fact that the HY Broad Market Index started 2002 with 15 international wireline issues, but by the end of the year, only four issues from this sector remained in the index, including Colt Telecom Group's 12% notes due 2006, which lost 23 points to end at 67.

Other big losers included North American cable (down 27.18% on the troubles of bankrupt Adelphia Communications Corp. And Charter Communications Holdings LLC); international cable (down 25.16%); utilities (down 15.28%) and domestic wireline, off 16.70%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.